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Dealing With Tenant Inability To Pay Rent In Commercial Leases During COVID-19

by | May 26, 2020 | Commercial Litigation and Disputes

Dealing With Tenant Inability To Pay Rent In Commercial Leases During COVID-19

As business activity has reduced and cash-flow stopped in many sectors as a result of the COVID-19 restrictions, tenant inability to pay rent is an inevitability. In order to survive the economic impact, Landlords and Tenants alike will be eager to work through this time in a way that protects their investments and businesses and without resorting to potentially expensive litigation with no realistic prospect of achieving the desired result. Open communication between both parties at an early stage is critical and it is important that all concessions, variations of lease agreements and guarantees are documented in writing.

This article explores practical ways of dealing with tenant inability to pay rent in commercial leases as a result of the adverse impact of COVID-19 restrictions.

  1. Concession by way of a Side Letter

Usually, concession arrangements are documented by way of a 1-2 page side-letter so they are quick to put in place and consequently offer immediate relief. Depending on an arrangement with its funder/s, a Landlord could be in a position to offer a commercial tenant a ‘rent-free’ or ‘rent suspension’ period during say Q2 (1 April to 30 June) or Q3 (1 July to 30 September) of 2020 by way of a side letter.

Any agreement reached regarding the responsibility to pay rent must be clear. A ‘rent free’ period is very different to a ‘rent suspension’ period. The latter infers that rent will be payable at some point in the future and interest on late payment may apply – which should be documented in the side-letter. Landlords could also consider moving from quarterly to monthly rent payments. Whilst the rent for occupying the premises could be suspended or written off by the Landlord entirely (subject to its funder’s requirements), it is strongly recommended that a tenant’s obligation to pay insurance, rates and service charges remain in place to ensure the Landlord’s valuable asset is maintained in accordance with good estate management practice. Business interest groups in affected sectors such as retail are reported to be lobbying the government for a waiver of rates for 12 months and it is important for a Landlord to ensure a Tenant would be in a position to avail of any reliefs in this regard.

The parties need to consider the circumstances in which the concessions would fall away – for example, consecutive non-payment of rent by the Tenant, persistent breach of other lease provisions or assignment to another tenant.

NB:  A Landlord and Tenant may consider agreeing ‘rent-free’, ‘rent suspension’ or ‘rent reduction’ periods in consideration for an extension of the term of the Lease or the removal of a Tenant break clause, for example. Whilst it is possible to incorporate the foregoing into a side letter, an agreement to vary the lease would be more appropriate. Both parties are reminded that if a Guarantee is in place, any variation of the Lease regarding term or rent will in most cases need to be agreed and confirmed by the Guarantor. Failure to do so could invalidate the guarantee.

  1. Variation of Lease by Agreement

Variation of Lease Agreements are more detailed documents which may be necessary if a Guarantee is in place (as described above) or the recent agreement reached between the Landlord and Tenant in principle is intended to last long-term or it affects key operational clauses of the Lease which requires careful scrutiny. For example, a Landlord may agree to dispense with a ‘keep open’ clause in consideration for a Tenant agreeing to put and keep business interruption insurance in place which might require a knock-on amendment of the definition of Tenant ‘insured risks’ in the Lease. A Variation of Lease Agreement is similar to a Lease in that it must be executed ‘as a deed’ by both parties and if there is a Guarantor, it should be a party too or confirm the agreement by way of a separate document.  In addition, a Landlord funder’s consent to the variation will in most cases be required. However, Revenue has confirmed that no stamp duty is payable upon the execution of a Variation of a Lease Agreement and a stamp duty return is not required.

  1. Mortgages

It perhaps goes without saying that Landlords will be required to engage with their lending institution before reaching any concession or variation of lease in principle. A letter of consent to the variation of the lease agreement will be required in most cases where a funder is involved. It is not in the interests of a lender to enforce against commercial landlords who are in arrears due to the COVID-19 crisis as the lender will be faced with the same problems as the landlord if it was to take possession – engagement may well be positive as a result. In addition, the Banking Payments Federation of Ireland has reported a joint plan of five pillar banks (AIB, Bank of Ireland, PTSB, KBC Bank Ireland plc and Ulster Bank) to introduce working capital supports for businesses affected by the impact of COVID-19 restrictions and Tenants with cash flow shortages are encouraged to avail of all available reliefs at this time.

It is extremely important that all concessions and variation of lease agreements are documented carefully in writing and that Guarantors and Lending Institutions agree to all relevant amendments.  An experienced solicitor in this area could assist a Landlord in protecting its valuable asset and a Tenant by ensuring the agreement reached reflects a fair and workable solution to the issues it faces during this difficult and uncertain time.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Dealing With Tenant Inability To Pay Rent In Commercial Leases During COVID-19”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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Urban Development & Building Heights in Strategic Development Zones

by | May 19, 2020 | Commercial Property, Residential Property

Since the issue of the Urban Development and Building Heights Guidelines by the Minister for Housing, Planning and Local Government in December 2018 (the “Guidelines”), land owners and developers are understandably anxious to know how these guidelines will apply to proposed developments of land, the subject of planning applications. The below case note sets out when a planning authority is required to apply the Guidelines and offers a solution for developers of sites for residential use in SDZs where the Guidelines have not yet been implemented.

The High Court case of Spencer Place Development Limited –v- Dublin City Council [2019   IEHC 384] concerned the interpretation of the statutory Guidelines. Judgment was handed down by Justice Garrett Simons in May 2019 and dealt with the central issue in the case regarding the interaction between the Guidelines and existing planning schemes adopted in strategic development zones (SDZs).

The main contention in the case concerned Dublin City Council’s interpretation of a particular provision of the Guidelines known as specific planning policy requirement 3 (A) or “SPPR3 (A)” in the context of the consideration of planning applications already submitted to it. The Guidelines were issued by the Minister pursuant to s. 28 of the Planning & Development Act 2000 (“Section 28”). A planning authority is required, under Section 28 to have regard to ministerial guidelines and to comply with specific planning policy requirements. The question was whether SPPR 3(A) applied to plan schemes where it stated it applied to ‘development plans’ only. A Briefing Note on the Guidelines prepared by Dublin City Planning Officer stated that SPPR 3(A) did not apply to the development proposed for a planning scheme area.

BACKGROUND & LEGAL ISSUES

The plaintiff developer had two pending planning applications before Dublin City Council where the height of the development would exceed the maximum building height under the applicable planning scheme. The developer argued that the Guidelines permitted the planning authority to legally grant the planning permission despite the height restrictions of the North Lotts planning scheme. The court was asked to make a declaration firstly that the Briefing Note of 21 January 2019 was ultra vires or outside the powers of Dublin City Council Planning Authority and secondly, that the Council was obliged to apply SPPR 3 (A) of the Guidelines from the date of their publication in December 2018 and prior to undertaking any review of the North Lotts and Grand Canal Planning Scheme.

SPPR3 provides as follows:-

“It is a specific planning policy requirement that where;

(A)

  1. an applicant for planning permission sets out how a development proposal complies with the criteria above; and
  2. the assessment of the planning authority concurs, taking account of the wider strategic and national policy parameters set out in the National Planning Framework and these guidelines; then the planning authority may approve such development, even where specific objectives of the relevant development plan or local area plan may indicate otherwise.

(B)

In the case of an adopted planning scheme, the Development Agency in conjunction with the relevant planning authority (where different) shall,  upon the coming into force of these guidelines, undertake a review of the planning scheme, utilising the relevant mechanisms as set out in the Planning and Development Act 2000 (as amended) to ensure that the criteria above are fully reflected in the planning scheme. In particular, the Government policy that building heights be generally increased in appropriate urban locations shall be articulated in any amendment(s) to the planning scheme

(C)

In respect of planning schemes approved after the coming into force of these guidelines, these are not required to be reviewed.”

The defendant Dublin City Council argued that the judicial review proceedings brought by the developer were premature as while both planning application decisions were pending there was, therefore, no ‘decision’ or ‘act’ that could be the subject of judicial review and that the ordinary meaning must be given to the word ‘development plan’ in SPPR3(A) above. Arising from the application of the ‘ordinary meaning’ test for interpretation, and after having considered the full text of SPPR3, DCC argued that all the guidelines required it to do, was undertake a review of the planning scheme in accordance with SPPR3 (B): SPPR3 did not necessarily require a Planning Authority to amend the planning scheme to incorporate increased building heights, DCC argued.  The developer contended that the Briefing Note issued by the City Council Planning Officer regarding his interpretation of the building height guidelines was ‘justiciable’.

HIGH COURT DECISION

Justice Simons refused to grant Spencer Place Development Limited its three declarations and held in favour of DCC.

CONCLUSIONS FOR DEVELOPERS

This judgment is of interest to developers as it highlights the following:-

  1. Where an amendment to a planning scheme is pending, a planning application will be decided upon by reference to the existing planning scheme.
  2. The building height restrictions of an existing planning scheme within an SDZ cannot be circumvented by reference to the Guidelines.
  3. It clarifies that a planning authority is required to apply the Guidelines when assessing planning applications outside an SDZ. This means that one possible solution for a developer, when faced with a refusal of planning permission in an SDZ on grounds of building heights, might be to apply for permission for the same development under the fast-track Strategic Housing Development process. This is because the relevant legislation[1] does not differentiate between property located in a development plan, a local area plan or a planning scheme. However, the proposed development would need to consist of at least 100 residential units or 200 student units or a combination of both.
  4. Developers are also reminded that there is no right to appeal a decision to refuse planning permission in an SDZ on grounds that an extant planning scheme did not incorporate subsequently issued SPPRs.
  5. Whilst the subject of costs formed a separate judgment of Simons J. this case also demonstrates the requirement for a plaintiff developer to await a decision from the planning authority prior to issuing judicial review proceedings. It was held by Simons J. in a further judgment delivered in the costs application that the developer was unable to make the argument that both parties should bear their own costs pursuant to s. 50B of the Planning & Development Act 2000 by reason of the finding (amongst others) that the Briefing Note did not amount to a ‘decision’ capable of forming judicial review under that section. Simons J made an order directing the plaintiff to discharge DCC’s costs under the ordinary rule set out in Order 99 of the Rules of the Superior Courts that costs follow the event/ the winner at the absolute discretion of the Court.

The Irish Times has reported that the developer has appealed the substantive decision of Judge Simons to the Court of Appeal.  The appeal could also affect the costs order. In addition, DCC has proposed an amendment to the planning scheme which would increase building height restrictions in the North Lotts and Grand Canal SDZ. We will update this note as soon as the decision in the appeal has been published.

[1] See the definition of ‘Strategic Housing Development’ in s. 3 of the Planning and Development (Housing) and Residential Tenancies Act 2014

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Urban Development & Building Heights in Strategic Development Zones”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com or Daragh Burke daragh@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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The Emergency Measures in the Public Interest (COVID-19) Act 2020

by | Apr 2, 2020 | Employment and Industrial Relations

The Emergency Measures in the Public Interest (COVID-19) Act 2020

In response to the COVID -19 epidemic, the houses of the Oireachtas have enacted the Emergency Measures in the Public Interest (COVID -19) Act 2020, (“the Act”).

For the purpose of this article, we will focus on the measures introduced in order to help employers navigate their way through the emergency. The measures introduced are aimed at minimising job losses and the overall impact of the virus on the economy.

Part 7 of the Act

Part 7 of the Act provides for a “temporary wage subsidy” provision for employees who were on the payroll in the business of an employer as of the 29th of February 2020. The temporary wage subsidy provides for a subsidy in wages at the rates set out below for a period of 12 weeks.

In order to be able to avail of this subsidy, the business or employer of an employee must make a declaration to the Revenue Commissioners confirming that by reason of the COVID-19 epidemic, there is at least a 25% reduction in either the employer’s turnover or orders being received by the employer which prevents the employer maintaining normal wages and that regardless, the employer intends to continue to employ the employee.

Subject to compliance by the employer of all provisions within the Act, the following provisions shall apply:-

  1. Where an employee’s weekly pay is less than or equal to €586.00, 70% of the employees take home pay to a maximum of €410.00 will be paid;
  2. Where the employee’s weekly pay is greater than €586.00 and equal to or less than €960.00 a maximum of €350.00 will be paid;
  3. No subsidy is payable in respect of employees whose average net weekly pay exceeds €960.00.

In order to apply for the scheme, employers are required to submit an application via ROS.

Revenue has clarified in recently issued guidance notes on the subject (reply to FAQ 3.11. on page 10) that whilst the subsidy is not subject to PAYE, it will be taxable on the employee at a year-end review.  If the tax assessed as owing by the employee in 2020 is more than his/her unused tax credits at the end of that year, Revenue has clarified that the outstanding tax will be clawed back by reduction of personal tax credits.

It is worth noting that the Revenue requires (see reply to FAQ 4.12. of the guidance notes) an employer to reimburse an employee for any overpayment of PAYE or USC deducted from an employee to date by operation of the Temporary Subsidy Scheme. Whilst Revenue has stated in its guidance notes that it will then reimburse the employer by the amount paid in this regard, the relevant legislation classifies this payment differently to the refund of the subsidy and they may both be paid on different dates (ie one later than the other). In light of this unknown, we would advise consulting your auditor or financial adviser before engaging in the scheme. Further Revenue guidance notes on the reimbursement arrangements are expected to issue on the Revenue website soon.

Revenue has also clarified in further guidance notes that the declaration required to support an employer’s application is not a declaration of insolvency.

Part 8 of the Act

Part 8 of the Act has altered an employee’s right to call on an employer to make them redundant during the emergency period in circumstances where they have been placed on short term lay off or have been laid off as a result of the COVID-19 pandemic. The “emergency period” runs from the 13th of March 2020 to the 31st of May 2020. This period of course may be extended at a later date if deemed necessary.

The practical benefit to an employer of this restriction is that they do not have to retain funds for the purpose of making statutory redundancy payments throughout the emergency period. Ordinarily, an employee would be entitled to call on their employer to make them redundant in circumstances where they have been laid off for 4 weeks or more or where they have been put on the short term for at least 6 weeks in the last 13 weeks.

Clearly the foregoing measures have been introduced as a means of trying to preserve employment throughout the pandemic. The measures provide employers with some comfort in that they cannot be called on to make redundancy payments throughout the emergency period, whilst also with the assistance of the State, employers may be able to maintain payment to their employees.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “The Emergency Measures in the Public Interest (COVID-19) Act 2020”, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com or Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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COVID-19 Pandemic – Information For Employers

by | Mar 27, 2020 | Employment and Industrial Relations

The aim of the government during this pandemic is to help employers keep as many of their staff on their payroll as possible. A number of schemes have been put in place over the last two weeks to help employers deal with the unprecedented economic fallout from the spread of Covid-19.

  1. Temporary Covid-19 Wage Subsidy Scheme – employers must show that at least 25% of their trade has been lost and they will then be able to claim 70% of their employee’s net wage back (up to a maximum of €410) through the scheme. The scheme is operated by Revenue and employers are expected to make their best efforts to maintain as close to 100% of normal income during the operation of the scheme.   Employers are also encouraged by the government, where possible, to top up their employee’s wages to maintain them at their current level of earnings.
  2. Short Time Work Support Scheme – if an employer needs to place their staff on a shorter working week or where they have had to cut their hours due to the pandemic, the employees can apply for this scheme.   Short Time Work Support is a form of Jobseeker’s Benefit and is a payment made in respect of the employee’s regular salary for the days they are no longer working. Employees must be working three days per week or less and also must have the required number of PRSI contributions in order to qualify.
  3. Recruitment Supports – if you are an employer looking to recruit staff in the following sectors:-
  • Medical/pharma
  • Healthcare
  • Retail/general operatives
  • Agri-food
  • Logistics/driving

the Employer Relations National Team is actively helping employers to recruit in these sectors during the pandemic. The Employer Engagement Contact List has details of all of the local employer relations divisions.

There are a range of supports available for your employees during the pandemic:-

  1. Employees who must self-isolate – For employees who are not diagnosed with Covid-19, but are required to self-isolate they can apply for illness benefit for Covid-19 absences. The payment will be made for a maximum of two weeks and the employee must remain confined in self-isolation in their home or a medical facility. In the unfortunate event that they are diagnosed with Covid-19, they will be entitled to the payment for up to ten weeks.
  2. Supplementary Welfare Allowance – if the employee is in receipt of the enhanced illness benefit for Covid-19 absence and the employer does not pay sick leave beyond the level paid by the State and the employee finds themselves in financial difficulty, they can apply for additional emergency income support. The supplementary welfare allowance is means tested.
  3. Workers who are requested to stay at home by their employer, but are unable to work from home, can apply for the pandemic unemployment payment of €350 per week.
  4. Caring for a person with Covid-19 – if your employee is required to take time off work to care for a person who has contracted Covid-19, they are entitled to apply for the Illness benefit for Covid-19 absences.
  5. Force Majeure Leave – employees are entitled to force majeure leave to provide urgent care to an immediate family relative (child, spouse, sibling, parent or grandparent). They are entitled to 3 days of force majeure leave within a 12 month period, or 5 days within a 36 month period. Given the extraordinary circumstances of the Covid-19 pandemic, employers are being encouraged to facilitate employees as much as possible by allowing them to take the full 5 days of leave within one block.
  6. Parental Leave – parents are entitled to take up to 22 weeks unpaid leave to care for each child up to 12 years of age, 16 years of age for a child with a disability, with 6 weeks’ notice required however employers have the discretion to waive the notice periods. Parents can also take two weeks of leave for each child under the age of 1 year born on or after the 1st of November 2019 and are entitled to receive Parent’s Benefit for the two weeks.

There is due to be an amendment made to the Redundancy Payment Act 1967 under the Emergency Measures in the Public Interest (Covid-19) Bill 2020 such that Section 12 of the Act will not have effect during the ‘emergency period’ between the 13th March 2020 and the 31st May 2020. The amendment will ensure that employees who have been laid-off or put on short time will not be able to seek redundancy payments during the ‘emergency period’ to avoid a situation where employers find themselves unable to pay redundancy claims where cash-flow may be severely restricted as a result of the pandemic. The amendment ensures that Section 12 ‘shall not have effect during the emergency period in respect of an employee who has been laid off or kept on short-time due to the effects of measures required to be taken by his or her employer in order to comply with, or as a consequence of, Government policy to prevent, limit, minimise or slow the spread of infection of Covid-19’.

Watch this space for further updates once the Bill has passed.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Covid-19 Pandemic – Information For Employers”, please contact Daragh Burke, Amorys Solicitors daragh@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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Amorys Business Continuity Plan – Covid-19 Pandemic

by | Mar 26, 2020 | Amorys News

The Irish Government has introduced unprecedented measures in order to protect the safety of our population amid the current outbreak of coronavirus COVID-19.  Within these measures, the government has advised that individuals where possible should work from home.

With this advice in mind, we have implemented our business continuity plans to ensure we can continue to provide a full service for our clients.  The safety and wellbeing of all our staff, clients, contacts and other third parties, is our main priority.

Our Amorys team remains committed to our clients and to the delivery of a first-class legal service.  While our office is currently closed we will continue to provide our services remotely.

As a service-focused firm, we have the systems and flexibility to continue to meet your legal requirements especially in challenging times like these.

We will continue to operate our office line on 01-2135940.  If you have any queries or concerns, please call or email your contact solicitor directly:

sharon@amoryssolicitors.com

brian@amoryssolicitors.com

deirdre@amoryssolicitors.com

daragh@amoryssolicitors.com

wendy@amoryssolicitors.com

rachel@amoryssolicitors.com

patricia@amoryssolicitors.com

As always, our team are available to support you and your business.

Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Amorys Business Continuity Plan – Covid-19 Pandemic”, please contact Daragh Burke, Amorys Solicitors daragh@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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